SAN FRANCISCO (The Red Herring) - Transactor Networks is trying to convince online consumers to use e-wallets by introducing a free service that does not need to be downloaded. But concerns about storing personal information remotely may be more likely to frighten them off.
Transactor's service allows consumers to securely store billing and shipping information on a remote server. Customers can bookmark their wallet on their browser, and make purchases at participating Web sites by simply entering a login and password.
The one-year-old startup has just closed a $5 million first round of funding from Draper Fisher Jurvetson. Jim Bidzos, chairman of the security software company VeriSign and founder of RSA Data Security, is also an investor.
Transactor is aware of consumers' security concerns and emphasizes that its 128-bit SSL encryption technology is the same security technology that banks use on the Internet.
It also boasts that its chief scientist is world-renowned cryptologist Bruce Scheiner, whose Blowfish algorithm remains unbroken after two years of cryptanalysis.
But the best security technology in the world may not be able to sway the perception that CEO Ron Martinez says the company confronts, that "if I can't see where my information goes, it must not be safe."
According to Zona Research, "Most consumers could care less about the security technology, and they don't know or care about which secure widgets are deployed. They do care about giving up their credit card and financial information to unknown third parties like, say, Transactor."
To overcome that obstacle, Transactor wants to partner with branded financial institutions, such as Citibank, that consumers already trust with their personal details. Martinez says that "substantive discussions, even negotiations" with a number of financial services companies are currently underway.
"Transactor's challenge will clearly be signing up the requisite number of merchants and financial institutions to create a critical mass, while convincing consumers that such a service makes more sense than simply paying with a credit card," according to Zona.
Online merchants to sign up so far include TheSmokeShop.com, Shades.com, SwissArmyDepot.com, and FragranceNet.com. Transactor encourages Web merchants to sign on by making the service free and by requiring no integration aside from linking to the Transactor Networks site.
Perception of safety
The startup's business model includes a number of revenue streams. It collects a fee for developing a branded front-end for its partner banks, it receives a referral fee from purchases made by consumers that come through the Transactor site, and it will send marketing information to customers that request it.
"For example, if a consumer buys a digital camera, he can also request information about offers of related software or lighting equipment," Martinez explains.
While consumers have been leery of e-wallets, Web merchants may have more reason to back them. According to Forrester Research, more than two-thirds of online shopping carts are currently abandoned because online shoppers are not prepared to fill out all the information needed to make a sale.
Developing a simple, standard system to replace that process should help convert more Web surfers to Web shoppers. And Transactor is not the only startup working on it.
Transactor's main competition comes from Bill Gross's Idealab. The eWallet, introduced late last year, is downloaded onto the user's desktop and automatically uploads personal information to Web commerce sites when a purchase is being made.
While it may seem safer to keep personal information on the user's desktop, Martinez says, "It's like leaving your physical wallet open in your office that doesn't close. ... Anyone can walk in and help themselves."
That may be going too far, but in a battle of perception, the electronic wallet that seems the most secure, wins.